US House Tax Adviser:Energy Tax Credit Changes Possible

(Adds comment from deputy staff director of the tax-writing Senate Finance Committee)
By Martin Vaughan
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--The top tax staff adviser to U.S. House Ways and Means Committee Democrats said Congress may consider changes to renewable energy and low-income housing tax credits because the financial crisis has put many tax credit-financed projects in peril.
"If this is as serious a problem as it has been portrayed, you could well see Congress taking a look at the issue," said John Buckley, chief tax counsel to Ways and Means Democrats, at a tax reform conference Friday.
Large banks, including some of the biggest names buffeted by the financial crisis including Citigroup (C), and the now-bankrupt Lehman Brothers (LEHMQ), have been the biggest investors in the tax credits, the lifeblood of wind and solar power production. Mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have been the largest investors in the low-income housing tax credits.
Buckley suggested the Republican Bush administration's Treasury Department made the long-term financing picture even worse for such projects through its response to the crisis. Treasury relaxed limits on the extent to which banks can use losses from firms they acquire to offset future tax liability. That delivered a tax windfall to, among others, Wells Fargo & Co. (WFC), a major investor in energy tax credits.
He said the ruling, in effect, will help Wells Fargo and other banks reduce their tax liability in future years and will have less use for tax credits.
Treasury's ruling "did more damage to renewable energy and low-income housing programs than anything else," Buckley said at the Brookings Institution tax event. "The pool of investors for these credits, to say it has shrunk is an understatement.
Solar and wind energy groups are asking Congress to make the tax credits, which Congress just renewed in October, refundable. They are pressing Congress to include that and other changes in a forthcoming economic stimulus package.
Buckley predicted the stimulus bill will be dominated by spending measures including infrastructure spending, and downplayed the extent to which tax provisions will be included.
"Spending will be a much larger part of the stimulus bill than taxes," he said. "Tax policy becomes increasingly less effective at a time like this."
That is in line with statements from Democratic officials, who have indicated tax rebates aren't likely to be part of the package, expected to reach $500 billion.
But Buckley also said business stimulus provisions like quicker expensing for small businesses and bonus depreciation may not be effective given current economic conditions. That's because firms can't get the credit they need to invest, and won't have tax liability enough for depreciation incentives to be useful, he said.
However, Bill Dauster, deputy staff director of the tax-writing Senate Finance Committee, said he expects both business and individual tax cuts to be a part of the stimulus package.
Dauster said temporary tax cuts for the middle-income individuals will find a place in the recovery bill. But asked what form those tax cuts would take, he said "it's too early to give an idea of how we would accomplish that."
Dauster also predicted that lawmakers would find room in the stimulus bill for renewable energy tax incentives.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com